New Report Warns of Medical Credit Cards, Loans Pushed on Patients

As medical debt continues to saddle many Americans, the Consumer Financial Protection Bureau (CFPB) is warning against costly medical credit cards and loans that are being pushed on patients.

These products can cause patients to pay “significantly more than they would otherwise pay,” the CFPB detailed in a new report.

Medical providers can offer alternative financing products, such as medical credit cards, medical installment loans, health savings accounts, and flexible savings accounts. Point-of-sale products — like medical credit cards and installment loans that were once used primarily for elective care — now cover a range of services, from emergency visits and specialty care to regular checkups.

However, consumers can incur significant interest charges with some of these products because the terms of credit can be confusing.

“Financial companies market these products to healthcare providers, who are encouraged to promote them to patients,” the CFPB wrote. “These medical credit cards and installment loans have largely replaced the low- or no-cost informal payment plans offered to patients directly by their medical providers. Instead, the medical financial products are generally more expensive than other forms of credit. Patients who use them may find themselves facing fees, interest charges, and adverse financial outcomes they didn’t anticipate.”

In some cases, patients reported signing up for medical financial products without consent, according to the report. It can be more difficult for patients to process complex information when they are in pain or under stress, the CFPB noted. Moreover, patients may extend their trust in medical providers to a referred financial services company or face burdens assessing financial options in the presence of a medical provider.

Others may not realize they have been enrolled in a payment plan, as in the case of an older patient who filed the following complaint with the agency: “I am a senior citizen and went to a dentist office in my area to have them do a routine checkup on my wife’s teeth. They only did two x-rays, yet I received a bill for $14,000 for services she never received or we agreed for. The dentist office opened up a credit card in my name in order to pay for these services without my consent. I do not speak good English, and they deceived me of the services we would receive, and I never received any receipts or copies of anything until I received a bill in the mail from the credit card company.”

Many medical financing companies do not vary the price of credit according to the borrower’s credit score, offering just one flat annual percentage rate, the CFPB noted. Interest rates for medical financing products are generally higher than general purpose credit cards and term lengths can range from 3 to 60 months.

Deferred interest promotions commonly offered zero or low interest for a set period of time, according to the report, but once the promotion period (typically a year or longer) expired, rates could significantly increase. And a borrower who was unable to pay the balance by the end of the promotional period may owe interest on the full purchase amount, the CFPB noted.

Ultimately, “people with low or moderate incomes who face the worst financial outcomes may be subsidizing those who can take advantage of the special financing periods,” the agency wrote.

The CFPB report showed that payoff rates for deferred interest healthcare promotions varied. From 2018 to 2020, payoff rates remained just under 80%, but were lower for consumers with near-prime and subprime scores, at 70% and 69%, respectively.

The total dollar value of healthcare deferred interest rose from $321 million in 2018 to more than $350 million in 2020, with borrowers incurring a total of about $1 billion in deferred interest during those 3 years. In 2020, borrowers who incurred interest on such products paid an additional 23% of their initial purchase.

The report comes as federal, state, and local officials across the country continue to call attention to the growing problem of medical debt in the U.S. That has included highlighting its disproportionate impact on those with lower incomes and poorer health, as well as on communities of color, as noted by HHS Secretary Xavier Becerra last year, when the Biden administration rolled out steps to ease Americans’ medical debt.

In February, a report released by the North Carolina State Health Plan for Teachers and State Employees, a division of the state treasurer’s office, showed that many nonprofit hospitals there had encouraged patients to sign up for medical credit cards that charged as much as 18% interest. And last fall, Toledo, Ohio, announced that it planned to erase $240 million of residents’ medical debt.